While these initiatives may come and go, one program consistently on the agenda of the CFO is managing costs. So, how does a business connect cost management with creating better organisational capabilities and competitive advantage?
The answer lies in harnessing the power of ‘human capital’ to deliver each capability effectively. Done right, the business becomes stronger. Done wrong, you can drain the life out of your human capital and deplete your organisation to the point of failure. I remember some advice given to a young, first-time CFO at Vodafone, ‘you don’t want to be remembered as the guy who cut the quality of the toilet paper, but you need to stop them flushing money down the toilet’.
What are the traditional options?
Having worked in and with hundreds of businesses over the past 25 years, helping manage and reduce costs, I repeatedly see 5 approaches to cost management;
- Centrally managed – no authority or autonomy outside the few, autocratic with little staff engagement
- Silo – budget holders who care only about their budgets rather than the ‘greater business’
- Q4 cycle – no matter what has happened so far, Q4 (or before) brings a travel ban and crackdown on ‘non-critical’ spend
- Spend it or lose it – linked to the Q4 cycle, spend your entire budget before Q4 or it may be taken back by HO
- No focus – we are doing well, leaders are rewarded for other objectives (growth, service delivery etc.) and efficiencies are not a motivation
Spend is becoming more distributed and more people are involved in the actual use of the cost and therefore want a voice - for example, according to Gartner almost 40% of IT spend is outside the IT budget. Leaving decision making on cost management to the few by putting in-place exhaustive ‘sign-off’ policies and processes (wrapped in an ever-increasing administrative process of requests, escalations, approvals and paperwork) just does not work.
How then, can a business change? How can you define, implement and lead a cost culture for your organisation?
Develop a better way
Firstly, for any initiative or change process to be successful, this must be a business decision. The execs have to care, to recognise the value and lead change. Managing the costs of the business is no different.
A senior executive (often it is the CFO) should sponsor a direct report who leads a cross-functional team, empowered and accountable for optimising business costs. This team works in in the context of end-to-end business processes – using a framework to define objectives and priorities for the program.
Secondly, a culture where employees feel engaged and empowered needs developing. Explain the strategy and benefits, train them, guide them, reward them and develop an environment they want to perform and grow within.
I have highlighted below four key steps that will help drive this culture;
- Share the strategy & the benefit – not just that reducing costs is good, you need specifics. Reducing the cost of Process A from £x to £y will mean what to them?
- Empower all employees and make them responsible for managing costs – give them the tools, the visibility, guide them and reward them for success
- Evangelise - shout about the wins, talk about things that didn’t work so well. Develop openness as a best practice
- Enable collaboration - encourage working groups, provide the frameworks and tools to foster better working relationships across entire processes and beyond
Making these changes will automatically drive a continuous improvement culture, as your teams look to ‘break’ the traditional approaches and drive new, more efficient, processes into your business.
5 tactics for quick wins
We can still develop some quick wins without a broad culture change. Here are 5 steps any business or department leader can implement now, to start the process of better cost management;
- Basic cost visibility for all – give stakeholders and users access to simple reports and dashboards into relevant spending
- Allocate costs – define a taxonomy and allocate process costs to departments, budget holders, even end-users
- Optimise – what assets do I currently have? Am I actually using them? Could I transfer them before buying more?
- Save money on what you use – am I on the best contract for my usage? How can I reduce my consumption?
- Link spending to your business metrics – determine your top-line KPIs (what the CxO cares about) and determine how to apportion your costs to these metrics. Then share and measure them.
Above all, do something. Even if it isn’t across the wider business under a CxO sponsored initiative, start one looking at the costs under your control. Pick a process that’s inefficient, build a team to work-out a way to do it better, then shout about the results.
Author: Ian Yates, Founder of Barcanet - Ian has over 25 years experience of using technology to help businesses achieve competitive advantage - reduce costs, automate processes and create efficiencies. To book a call with Ian e-mail him on info@Barcanet.com